Autodesk, Inc. — Q1 Fiscal 2022 Form 10-Q
Reporting period: Three months ended April 30, 2021; comparisons are with the three months ended April 30, 2020 unless otherwise noted. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
Business context and key results
Autodesk sells design and make software through subscriptions, cloud offerings, enterprise business agreements and a smaller maintenance business. Subscription-based recurring revenue was 98% of net revenue, unchanged year over year. Management reported stronger new subscriptions, usage and renewal rates, accelerating digital sales, and growth in Architecture, Engineering and Construction (AEC) and Manufacturing.
| Metric | Q1 FY2022 | Q1 FY2021 | Change / context |
|---|---|---|---|
| Net revenue | $989.3 | $885.7 | +12% |
| Subscription revenue | $947.5 | $803.0 | +18% |
| Maintenance revenue | $19.1 | $62.1 | -69%; migration to subscription plans |
| Gross profit / gross margin | $896.5 / 90.6% | $803.8 / 90.8% | Margin calculated from reported revenue and gross profit |
| Operating income / margin | $133.8 / 14% | $130.6 / 15% | Expenses grew faster than revenue |
| Net income | $155.6 | $66.5 | Includes a tax benefit and improved other expense |
| Diluted EPS | $0.70 | $0.30 | Non-GAAP diluted EPS was $1.03 vs. $0.85 |
| Operating cash flow | $336.1 | $327.3 | Capital expenditures were $20.3; calculated free cash flow was $315.8 |
| Cash and cash equivalents at period end | $923.2 | $1,389.7 | Down from $1,772.2 at Jan. 31, 2021 |
| Notes payable, net | $1,637.9 | $1,637.2 | $1.65 billion aggregate principal outstanding |
Material changes and financial position
- Revenue growth was led by subscription products; the decline in maintenance reflects customer migration to subscription plans. AEC revenue increased 16%, AutoCAD and AutoCAD LT 9%, Manufacturing 8%, and Media and Entertainment 5%.
- Marketing and sales expense rose 10%, R&D 22%, and total operating expenses 13%. The company cited higher headcount and stock compensation among the drivers. GAAP operating margin declined to 14% from 15%; non-GAAP operating margin was 28% in both periods.
- Net income increased partly because interest and other expense improved to $2.4 million of expense from $40.1 million of expense, reflecting lower strategic-investment impairments and measurement losses, gains on certain investments and foreign currency, and other items. The quarter also included a discrete tax benefit primarily related to an Indian Supreme Court decision on withholding taxes. The tax benefit was $24.2 million, versus a $24.0 million tax provision a year earlier; this makes reported earnings less directly comparable.
- Operating cash flow increased modestly. Investing cash outflow was $1,040.4 million, primarily reflecting the Innovyze acquisition; financing cash outflow was $142.1 million, including $151.4 million of cash used for repurchases and $64.2 million of stock issuance proceeds. Cash declined by $849.0 million during the quarter.
- Current assets were $1,505.4 million and current liabilities $3,130.1 million, including $2,540.7 million of current deferred revenue. The filing reports $923.2 million of cash and no marketable securities at April 30. The company had an undrawn $650 million revolving facility, maturing in December 2023, and stated it was in covenant compliance.
- Deferred revenue was $3.345 billion; remaining performance obligations (RPO) were $4.234 billion, nearly flat versus Jan. 31, 2021. Autodesk expects to recognize $2.863 billion, or 68% of RPO, over the next 12 months.
Outlook, management commentary and risks
- Management said it expected sufficient liquidity for at least the next 12 months from cash, operating cash flow and available credit. It planned continued investment in R&D, construction and digitization. The filing does not provide a full-year revenue or earnings forecast in the supplied text.
- For Q2 FY2022 versus Q2 FY2021, management expected cost of revenue, marketing and sales, and general and administrative expense to increase in dollars but remain flat as a percentage of revenue; R&D was expected to increase in dollars and as a percentage of revenue. Amortization of purchased intangibles was expected to be flat.
- Management expects maintenance revenue to continue declining, with the pace dependent on renewals and migration to subscription plans. RPO may fluctuate with contract timing, size, billing cycles, renewals and foreign exchange.
- COVID-19 and the pace of economic recovery remain uncertain. The filing identifies risks including subscription renewal variability, competition and technology shifts, acquisition integration, foreign exchange, international operations, cybersecurity and privacy, and reliance on distribution partners. Tech Data accounted for 36% of quarterly revenue and 36% of trade receivables; Ingram Micro accounted for 10% of revenue.
- Autodesk acquired Innovyze on March 31 for $1,040.9 million of total consideration, including $1,038.3 million cash. Purchase accounting was preliminary, including amounts for tax balances, deferred revenue and residual goodwill. Goodwill increased to $3.484 billion; no goodwill impairment was recorded in the quarter. After quarter-end, Autodesk acquired Upchain for approximately $126.7 million cash plus $13.1 million of stock to be issued later.
- Legal matters are described as ordinary-course proceedings; management did not expect pending matters to have a material adverse impact, but noted an unfavorable resolution could materially affect a particular period and losses could not be estimated. The filing also reports $200.5 million of gross unrecognized tax benefits.
Most important facts for investors to verify
- Whether subscription growth and renewal trends improve: NR3 was 100%–110%, compared with 110%–120% a year earlier.
- How much of the reported net-income increase is attributable to the discrete tax benefit and other non-operating gains, versus operating performance; review the GAAP-to-non-GAAP reconciliations.
- Cash generation and liquidity after the Innovyze and Upchain acquisitions, repurchases, and ongoing investment; distinguish cash from deferred revenue and other obligations.
- Integration progress and final purchase accounting for Innovyze, including the acquired intangibles and goodwill, and the accounting for Upchain.
- Exposure to distributor concentration, international markets, currency movements, and continued COVID-19 uncertainty.